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Using the index model, if the beta of your actively managed portfolio is greater than 1,...

Using the index model, if the beta of your actively managed portfolio is greater than 1, you should:

a. Increase the proportion of your portfolio invested in the market index to improve your diversification

b. Decrease the proportion of your portfolio invested in the market index to increase your alpha

c. Increase the proportion of your portfolio invested in the market index to increase your alpha

d. Decrease the proportion of your portfolio invested in the market index to improve your diversification

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Answer #1

The correct answer is option C i.e. . Increase the proportion of your portfolio invested in the market index to increase your alpha

If the beta of your actively managed portfolio is greater than 1, then Increase the proportion of your portfolio invested in the market index to increase your alpha.

Since, A beta greater than one means the fund or stock is more volatile than the benchmark index, increasing proportion into market index will increase the alpha.

Thumbs up Please! Thank You

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